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Prime Minister Benjamin Netanyahu is on the verge of agreeing to freeze the "drought tax" and to only gradually introduce higher water rates, which was scheduled to take effect January 1, 2010, TheMarker has learned. Netanyahu has instructed the Director General of the Prime Minister's Office, Eyal Gabai, to examine the matter.

The cost to the state budget of such changes is estimated at NIS 1.2 billion.

Netanyahu has already given in on a number of similar populist issues, such as the cancelation of the levying of value added tax on fruits and vegetables as part of the budget process, saying he was attentive to public opinion - a move that left a NIS 1.5 billion hole in the state budget.

"It would be better for Netanyahu to stand up and freeze the tax before he is painted as someone who is once again giving in to public pressure," said a Likud member.

Gabai is expected to propose freezing the heavy fee on excess water usage during the winter months while at the same time cutting down on the increases in water prices. A final decision is expected soon.

The National Infrastructure Ministry has already proposed the moves due to massive criticism in the media and by the public, as well as a revolt by a number of MKs on the issue, including calls for a rebellion against paying the new water tax.

Knesset to intervene

The PMO has been holding consultations on the matter over the past few days. In private talks Gabai has spoken in favor of reexamining the drought tax and reforms in water rates.

The Knesset Finance Committee is scheduled to vote tomorrow on a bill introduced by MKs Amnon Cohen (Shas), Uri Maklev (United Torah Judaism) and committee chairman Moshe Gafni (United Torah Judaism) to repeal the drought tax completely.

The Chairman of the Knesset Economic Affairs Committee, Ofir Akunis (Likud), is also expected to convene his committee on Wednesday for an urgent meeting with the head of the Water Authority, Uri Shani, to discuss the tax. Akunis is demanding to freeze the tax and to postpone the reforms in water rates for a year. Akunis claims the increases in water fees have gone too far.

MK Miri Regev (Likud) reached an agreement on Friday with Gabai to hold a meeting with representatives of the Water Authority, the treasury and the National Infrastructure Ministry to formulate an overall plan for the national water system.

National Infrastructure Minister Uzi Landau's bureau said: "We have held discussions on the matter with the Prime Minister's Bureau, based on [Landau's] statements that the drought tax would be canceled if the winter makes that possible. In addition, the minister's proposal for a gradual increase in rates so as not to harm the public was discussed."